Renewable Energy Policy and Politics

Summarized by Mark Huber

Table of Contents
How to Read This Book ................................................................................................................................. 2 Chapter 1....................................................................................................................................................... 3 Introduction Chapter 2....................................................................................................................................................... 4 Myths, Pitfalls and Oversights Chapter 3....................................................................................................................................................... 9 Ten Features of Successful Renewable Markets Chapter 4..................................................................................................................................................... 17 An A to Z of Stakeholders Chapter 5..................................................................................................................................................... 25 The Politics of Achieving Legislation 6: Renewable policy lessons from the US ................................................................................................... 31 The Need for Consistent and Stable Politics 7: Development of Renewable Energy in India........................................................................................... 34 An Industry Perspective

How to Read This Book

This book has been structured as a resource book or handbook. It does not need to be read from cover to cover. Rather, each chapter is like a case study that can be used as a stand-alone resource. This book has not been intended to be an up to date guide to the status of renewable energy markets; the industry is too dynamic for that. However, each chapter has tried to capture what has been going on in important markets during critical phases of their evolution. These examples should be used to learn previous successes and failures in the market, which may help to interpret the present and inform the future.

Chapter 1
Introduction
Where there is a conflict between an available clean technology and an entrenched dirty one, the challenge is politics and the need for legislative action, not technology We can do it, we just have to want to. -David Suzuki

The scientific argument for action to address anthropogenic climate change is essentially complete. The debate is no longer if climate change is happening, but how quickly. We start with this assumption: Renewable energy is indispensable to the 60-80% greenhouse gas emission cuts that scientists say must be made over the next 50 years. Some may argue that nuclear power or coal power with CO2 sequestration are other potential solutions. While we will not discuss those here, we encourage supporters of these ideas to be familiar with the regional stability issues of plutonium stockpiles, particularly in Asia if their urgent energy needs will be met through nuclear power. Also, be sure to include the impacts of geosequestration on the cost of coal-fired generation versus projections for wind and biomass. Right now, renewable energy appears to be our best option. Better energy sources may become available later, like fusion, but they are not ready now. If renewables meet all of our future energy needs that is great, but if they do nothing more than buy time while better technologies are evolved, that is also good. Either way, the urgent need for renewables remains the same. So why the need for politics? Unlike cell phones or desktop computers that created new services, renewables are entering an existing market which is already occupied by another product: fossil fuels. We are living in a time when renewable and conventional generation prices are converging, like a pack of jackals hunting down the fossil fuel wildebeest. The conclusion of this confrontation appears inevitable. In addition, looking at the problem in the cool light of logic, energy and environment issues are technical debates with clearly right and wrong answers, where politics should theoretically choose renewables on objective, rational reasons. However, political decisions are often far from rational, and energy policy is no exception. Fossil fuel companies are corporate colossi that will seek to have even the smallest renewable energy schemes strangled at birth. Unwitting renewable energy participants and their allies are lambs to the slaughter unless they realize the magnitude of the challenge that faces them. This book will delve into the characteristics of sound renewable energy policy and teach us how to avoid policy that prompts a development gold rush only to leave behind an industry ghost town. Real-world case studies of successes and failures will come from the UK, USA, India, Spain, Germany, and Cambodia.
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Chapter 2
Myths, Pitfalls and Oversights
This chapter will differentiate successes from failures in the world of renewable energy policies. It will identify what must be avoided if we are to walk the path to successful renewable energy policies. Myths The technical myth: The price of renewable energy will be reduced by technical breakthrough This is the myth that some great idea will come along and revolutionize energy production, making it cheap and clean, allowing man to live in peace. However, once the initial technology is proven, the commodity price is driven down by the size of the market. Typically, doubling the installed capacity will be accompanied by a 20% reduction in prices. Since the beginning of the Industrial Revolution, our view of progress has been tied to the idea of a breakthrough. However, most progress comes from a combination of steps which, when taken as a whole, appear as a breakthrough. Renewable sources that are mature may be considered to have broken through. These include wind, solar hot water, solar PV, biomass and derivatives, small hydro, and geothermal. Renewables still working on a breakthrough include wave, tidal, ocean thermal, ocean current, and a wide array of solar thermal electric technologies. Unlike fossil fuels, we already have an excellent idea of what volumes of energy to expect if these sources are successfully harnessed. The recognition of this difference between broken-through (commercial) and waiting-for-a-breakthrough (pre-commerical) renewables clearly implies the need for two different policy types. The myth of the righteous: A good idea will always succeed and intervention is unnecessary The road to oblivion is littered with good ideas. Most significant innovations that have led to major societal changes have been identified and fast-tracked by governments. There is almost universal agreement that renewable energy is a good idea, but this is not enough to foster a substantial industry. Pointed and well-conceived government intervention is required in the form of legislation. The hands-off myth: Government intervention only undermines the proper working of markets It is often said that markets are good servants, but poor masters. They are good at doing what they are designed to do. In the market, renewable energy is better than conventional energy because the fuel is free, inexhaustible, less polluting, generated indigenously, and creates more employment. It is also inferior to conventional generation because some forms of renewables are less energy intensive, the sources are nature-dependent and not as controllable, and some are harvested on a smaller scale which increases complexity.
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Perhaps most importantly, the cost of renewable energy includes the environmental and societal impacts of its pollution while conventional energy externalizes these costs onto taxpayers and insurance companies. Governments must intervene in the power sector and energy markets because they lack ways to incorporate the benefits of renewables and liabilities of fossil fuels into their decision-making. Money myth: Renewable energy is more expensive than thermal power This hammers home the fact that environmental and social external costs are not included in the price of fossil fuel power. If they are, renewable energy is actually cheaper than conventional generation. Until polluters are required to avoid or compensate for the secondary effects of their business, business planners will not consider these costs on their balance sheet. Money myth: Because renewable energy is more expensive and capital intensive, the best governments can do is throw money at the problem Governments need to focus on policy design and legislation to attract private sector investment. Lets use the wind industry as an example. A typical 2MW wind turbine costs about 2 million to buy and install. A manufacturer needs to sell about 100 turbines per year to justify a blade manufacturing facility. A strong market is characterized by three or more companies, with no individual company having more than 30% market share. This suggests a strong installation and manufacturing industry might be characterized by 300 turbine sales per year, equating to sales of 600 million per year for a healthy national wind industry. This target is clearly beyond the budgets of most governments, so instead the government should use legislation and market dynamics to leverage private sector investment into renewable power projects. Past successful policies distribute the premium costs of renewable energy development onto the energy consumer or onto the taxpayer, ensuring price impact is minimized. Policy Pitfalls Pitfall: Under-defined objectives The World Bank has two idealistic objectives in mind when lending money: promoting sustainable development and eradicating poverty. However, in lending contracts drawn up with the Bank, these two objectives are hardly ever addressed explicitly. For example, lending money for a gold mine and simply hoping that this will eradicate poverty is poor contracting. The end objectives must be clearly understood by all parties throughout the process and where possible hard-wired into contracts/legislation. Dont simply have faith in free market economics to achieve fundamental goals. Pitfall: Cross-cutting objectives Political proponents of policy change must balance economic, industrial, social, and environmental interests to define a clear set of policy systems that will actually deliver intended outcomes. While the elegance of simplicity is often attractive, in renewable energy policy it can lead to an inferior outcome.

Sometimes apparently mutually supportive objectives can clash in practice. Take, for example, the objectives of renewable energy development and carbon abatement. Short term carbon abatement can be achieved by planting trees (carbon sinks) and other cheap methods. In the long term, carbon abatement is best achieved by using renewables to reduce GHG emissions. But short term horizons are the ones seen by businesses that have to abide by the policy, so we may actually hobble the current renewable industry by throwing it into a scheme where it is required to compete with low-cost carbon abatement. Pitfall: Inadequate resource and/or technology identification Technology neutral is a buzzword meant to imply a white-glove, optimum-outcome approach that does not prejudice or favor a particular technology. It should be avoided for three reasons: to omit out-ofscale projects and free riders, to keep out dead-end innovation, and to avoid killing off future industries through excessive competition. The relative scales of industries demonstrate the need for focused identification. Wind projects may be 10-50MW in size, while a high-efficiency coal project may have a capacity of 500-2000MW or more. So a single coal project could soak up the support for the equivalent of a dozen renewable projects. Furthermore, if the new coal plant is 5% more efficient than previous ones, would that not have been installed anyway, regardless of new policy? These free riders should be excluded from emission reduction credits under an additionality clause. Dead-end innovation refers to changes that do not really produce a net decrease in GHG emissions. If hydrogen is made from coal to power transportation, GHG emissions remain the same, then what would be the point? This is dead-end innovation. Excessive competition can exist either between technologies or between projects. This causes project proponents to reduce profit margins to the point where project viability is threatened. If the margins are low for the project developers, then they will also be small for all the suppliers of that project, and history tells us that this does not provide the comfort room that manufacturers look for. Pitfall: Incorrectly targeted measures A classic pitfall is to focus on reducing the capital burden while failing to require strong performance from the installations. This is responsible for several skeletons in the closet of the renewable sector. The crucial step in policy is to have all or a major part of the incentives attached to the actual production of energy, and a pressure to increase performance. A balance must be ensured between reducing the commodity price through capital-oriented fiscal incentives, and longer-term incentives to force the industry towards higher performance standards. Pitfall: Opaque incentives Policies must be as clear and open as possible to attract global renewable companies into a new renewable market. Local knowledge must be coupled with international expertise if the wheel is not to be reinvented in every new market. However, this need is not always matched by backroom
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negotiations that often precede large infrastructure contracts. A country that adds complexity, caps, strings, and sunsets to their renewable energy policy will make international companies and investors more hesitant to get involved. Pitfall: Boom and bust a lack of policy and market stability Three things can undermine confidence in policy and create boom-bust cycles: volume caps, time frames (sunsets), and excessive policy change. Caps and targets are great for limiting problems, but they are a nightmare for building solutions. Experience indicates they lock in a boom-bust cycle. For example, in Australia, the MRET legislation set a policy goal of 9500 GWh of renewable generation. During the first three years of the policy, renewables were very active in expansion, but the end is already in sight. Once the target goal has been achieved, there will be a halt on new development. Almost all of the projects installed will be in place within the first five years of the scheme. After that, the Australian wind industry hits a wall. If targets are used, they must be dynamic to provide a constant but steady pull on industry. A sunset tells investors, Dont get too comfortable because we are not in this for the long term. Why run a scheme that goes until 2010 or 2015 when climate mitigation will require a 50-100 year transition to zero-emissions? One way to achieve the same outcome is to replace sunsets with reviews. The problem with this, though, is that, for government, one parliamentary term is about four years, two policy terms is guesswork, 10 years is a long time and 20 years is somebody elses problem. Excessive policy change causes industries to lose confidence in government. This may cause them to depart and do business elsewhere or expect higher returns to cover the risk of doing business in such an environment. Pitfall: Inadequacy/excessive fiscal constraint Transferring tax dollars to the private sector is a flow in the wrong direction for any well-meaning treasurer. This creates a pressure for economic efficiency. However, new industry development policies need to work like an automobile choke, helping them get started and then easing off to allow a lean fuel mixture to keep the engine running optimally. Oversights Oversight: Absence of contextual frameworks For example, a license to generate electricity may reflect the cost of a half-billion-dollar power plant. Should someone who puts 100 watts of solar PV on their roof have to purchase the same license? Another example: wind turbines were classed as power stations and required to withstand an earthquake without catastrophic failure. The consequences of an unmanned tower toppling in a farmers field cannot be compared to the flattening of a thermal power station full of workers. Thus, contextual frameworks must be checked for all the legal processes that renewable projects need to pass through.
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Oversight: Energy market reform and access Renewables are expected to work within a policy system created at a time when nobody imagined electricity flowing any way other than from inside the system and out. Infrastructure planning is unlikely to have ways to factor in savings through embedded generation and reduced system use. On a longterm front, issues must be confronted about how grid infrastructure is extended, reinforced, and paid for. Oversight: Poor risk/cost-benefit distribution The benefits of renewable energy accrue at different levels. Pollution mitigation occurs at a global level, inward investment occurs at a national level, and manufacturing and employment creation occur at a regional level. Yet the direct physical impacts occur at a local level only. Experience indicates that there is a strong link between local social acceptance of renewable developments and local ownership. Oversight: Absence of commensurate planning and planning reform Excessive constraints on planning consent may constitute an oversight which can bring the industry to a grinding halt. The ease and simplicity of obtaining planning or installation consent becomes crucial to this development-intensive industry. Overlooking this issue can stall the industry, or worse.

Chapter 3
Ten Features of Successful Renewable Markets
We will discuss the following ten features of successful renewable energy markets in this chapter: Transparency Well-defined objectives Well-defined resources and technologies Appropriately applied incentives Adequacy Stability Contextual frameworks Energy market reform Land use planning reform Equalizing the community risk and cost-benefit distribution

These features of a successful market are under the following assumption: There is a climatologically urgent need to take rapid implementation of renewable energy. The first six features are driver-based issues, the next three are contextual issues, and the last one is a societal issue. We will examine the underlying questions of each feature that need to be addressed in the discussion of renewable energy policy. Transparency In any new market, such as renewables, most potential entrants will be outside the market at the outset. A lack of transparency tends to favor insiders or more influential companies, so transparency in policies is necessary to bring in the outside capital of companies entering the renewable market. Question: Are the policies comprehensible enough to understand and comprehensive enough to cover all of the components required to make projects bankable? By bankable, we mean the project proponent can produce a set of contracts, approvals, surveys, and cash flow projections, and set these down in front of a bank or financier. It is to the governments advantage to ensure its policies cover all bankability issues, including rights related to the location, market access, taxes and charges, fuel costs, the value of produced energy, etc. Question: What unknowns exist in the policies that might affect the size of the market, the prices paid for renewable energy or the duration of the scheme?

Variables that can interfere with market growth include the level of support, the duration of support eligibility, the duration of support schemes, and the quantity of renewables required under the scheme. Minimizing these uncertainties strengthens the policy and allows the market to grow. The manufacturing part of the industry is particularly susceptible to unknowns. Question: Are the policies structured fairly so that they do not favor insiders compared to outsiders? Policies put in place should be open to the widest possible base of businesses, kept free of time constraints or cut-off dates, and based on standard requirements that are not subject to interpretation. Policies that are not equally accessible to any renewable energy business will dissuade new entrants. Question: Do the policies have sufficient time frames to allow dissemination and engagement from interested parties in other countries and sectors? Short-term schemes are like a gold rush. To put a number on the time frames, note that most renewable energy installations will have a lifetime of at least 20 years. To keep prices low for the producer, eligibility of support should be at least 15 years. So a policy scheme that lasted no more than 20 years would foster high activity for five years and then result in a standstill for new activity. A better scheme would have no fixed term but would guarantee that all projects are eligible for 15 years of support, resulting in stable installations as long as the scheme is in place. Question: Are the renewable energy policies consistent with policies and measures for other parts of the energy sector, or are there mixed messages and double standards? Government policy is dynamic and may be contradictory. This will affect renewable energy investments when there is an inherent conflict between statements and policies on energy or the environment. Well-Defined Objectives Question: What outcomes are actually intended from the renewable energy policies? There are many reasons to accelerate renewable energy development. They include sustainability objectives, energy policy reform, renewable energy production, new generating capacity, indigenous fuel manufacture, greenhouse gas mitigation, distributed generation, increment size, energy cost and least-cost planning, energy security, new industry/manufacturing development, development of intellectual property in new technologies, job creation, rural development, and nuclear phase-out. Every country needs to prioritize these potential benefits, and then integrate these priorities into policy. Question: Are the drivers and measures specific about the intended outcomes? Some installed wind turbines have sat idle after installation. Why? This was not an intended outcome of policy, but it has happened because policy focused on supporting installation but not operation of turbines. We know now that connecting price support to the number of kilowatt-hours of energy produced is one way to achieve the desired outcome of creating renewable energy. Policy outcomes should not be left to chance, but be made specific and explicit.
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Question: How is performance checked and the risk of under-performance minimized? The most effective route is to establish milestones that reflect objectives and then review policies on a regular basis against these milestones. Policies can be built with adjustable parameters so new milestones can be established. In this way, specified objectives are delivered while partially futureproofing without undermining stability. Well-Defined Resources and Technologies Technology sets can either be defined by resource/technology (technology specific) or by outcome (technology neutral). We cannot assume that policies renewables function within will exclude nonrenewables. Question: Do the policies avoid putting industries which are extremely different in size and maturity into direct competition? Unless David has some remarkable attributes, the Goliath usually wins. There will be consequences for allowing non-renewable, market-dominant technologies access to resources set aside for the developing industry. Also, realize that performance cannot be fairly compared between large established industries and embryonic ones. Question: Are the policies focused on renewable energy free of contradictory goals? Schemes such as tree planting (carbon sinks) are cheaper than putting up wind turbines, so including this type of GHG reduction avenue into policy will make renewable energy plants not competitive. If legislation aims to capture low-hanging fruit solutions, renewable energy will become viable only in the long term due to market forces. The crucial element is to ensure that renewables sit at the center of the policy if they are the goal. Question: Are technologies treated differently if necessary? And how? An appropriate level of policy neutrality can be created by identifying technology groups with defining characteristics that render them suitable for specific policy targets. One good way to classify renewables is from an economic standpoint: low-cost commercial, high-cost commercial, noncommercial but with declining prices, or non-commercial without declining prices. Question: Is the intended technology or mix of technologies properly articulated? The general criticism of specificity is that it is not as financially optimal as a policy under which technologies and projects compete on equal footing. Carbon geosequestration has been pressuring politicians to be considered renewable or zero emission. A technology-specific policy is likely to pay dividends in industry development, job creation, and exports. However, it will not create a broad base of energy production or least-cost energy. A technology-neutral policy is likely to provide the greatest renewable production, but it may not encourage manufacturing or diversity.

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Question: Are the consequences of including any environmentally unsustainable technologies fully understood? The main areas of concern are new hydroelectric projects and unsustainable biomass. Hydroelectric plants cause flooding and river-flow disruption, and biomass acquisition leads to a loss of biodiversity. Appropriately Applied Incentives Question: Is there flexibility to allow new technologies to be included and evolve in the future? Policies must permit technologies to be introduced, migrate as they evolve, and ultimately depart from policy support. For commercial technologies, development needs policy to make up the price gap. Question: Are the identified technologies actually being developed by the policies? There are four main reasons a technology can be left behind: drivers may not be optimized, variations in financial efficiency, parallel industry development may not occur, or there may be inadequate or unclear policy signals. Renewable policies must ensure that technologies are not left to stall. Question: Is the line drawn around the eligible technologies in a way that allows adequate promotion for the country-appropriate technologies? Wind power is successful in countries like Denmark, Germany, and the UK. They are windy places. In other countries, an appropriate mix of technologies may not include wind at all. Promoting only the most globally successful technologies may not harness abundant national renewable resources. Adequacy Manufacturing and job creation are often the crown jewel of a renewable energy policy. However, these sometimes run counter to short-term economic efficiency where the correct financing, duration, and intensity thresholds must first be achieved. Question: Are the policies leveraging private sector investment? The way to mobilize renewables is to mobilize private sector finance. This can be done by ensuring investors a return on their money equivalent to or better than that available elsewhere. Question: Are the returns on investment comparable with other alternatives? Large companies can finance projects internally or off a balance sheet. Smaller renewable players must bank the project on the merits of the project alone and pay substantially more for their equity. As a result, some level of pollution internalization or positive intervention is necessary. Question: Are the investment periods long enough for project investors to get a return on equity? Projects with a lifetime of 20 years require a very long-term commitment by investors. Excessively short periods of support can lead to prices which do not represent the real cost of renewable energy.
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Question: Are the installation intensity and scheme duration adequate to enable manufacturing? If the installation period is not sustained or if the throughput is too small, it may be cheaper and less risky to import technology. Domestic manufacturing and associated job creation will not occur. Stability Question: Does the policy framework avoid boom-bust cycles? The boom-bust phenomenon is one of the most common failures in the renewable energy market. Frameworks must avoid excessive time pressures or competition for funds. If the policy sets a target, then once the target is reached, the target becomes a cap, and the boom becomes a bust. There are four reasons for boom-bust cycles: a time restriction or eligibility period, limited pools of resources, targets causing development rushes, and excessive competition. Question: Does the policy plan for the whole cycle of an industrys development? There are three fairly distinct areas of the growth phase. The first is a slow, flat start as industries materialize from nothing. Then a J-curve of growth as industries get progressively bigger and better. Finally, a plateau on growth as resources or other constraints confront the industry. Question: Does the policy provide an ongoing steady pull on development? The most stable growth pattern is the S-curve of industry development. The fewer wobbles and deviations from the curve, the more steady the pull. As constraints are felt by renewable industry and they plateau in growth, there may still be a price gap between renewables and fossil fuels. The price of carbon or other externalities will play a large role in determining their ongoing viability. Question: Is the resource base for the incentive sustainable? The steady pull on industry development should be matched by a balanced and sustainable pull on the resources made available by the government and the wider economy. Question: Are there long-term energy policies that provide guidance and surety for evolving policies and measures? The types of policies most applicable for the long-term are non-legislated statements of objective. These demand that whatever legislation is enacted be consistent with this objective. These targets will preferably extend for as long as half a century. Contextual Frameworks Question: Is there an overarching national policy objective in place to guide all policy-making? The single national objective for specific long-term renewable energy growth provides three important foundations: an incentive for positive legislation, a reason to review existing legislation that may be acting as a barrier, and insurance against obstructive legislation being put in place thereafter.
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Question: Have all the laws that affect renewable energy projects been checked to ensure they are conducive and not obstructive? The easiest way to answer this is for legislators to put themselves in the shoes of a business person attempting to establish renewable production and travel the path from project conception to project completion. Question: Are the policies and measures at all tiers of government consistent and self-reinforcing? At the top are international agreements and conventions. Next come national energy/environmental policy, national industry development strategy, and national planning and zoning policies. At the state level, there are state energy/environmental policy, state industry development plans, and state planning and zoning legislation. At the local level there is local planning legislation. Finally, there is stakeholder specific intervention. All of this framework must be free of policy settings that are mutually inconsistent or guided by contrary principles. Energy Market Reform There is special concern with respect to the dominant position that vertically integrated fossil fuel companies have in the fuel supply sector. The small, modular, distributed nature of renewables requires major changes to the philosophy of such systems. Question: Are the certification or licensing requirements appropriate for renewables? Requirements must reflect the small but modular nature of renewable generation. Whatever replaces the existing system should take the form of a new licensing system rather than ad hoc waivers. Question: Is access to commodity markets affordable and guaranteed? Renewable generators must be able to get their commodity to consumers without hindrance and legally sell the commodity. Access to grid hardware and systems has proved to be a huge stumbling block for renewable generation. Access for many small, similar projects must be standardized and streamlined. Question: Is there prioritized dispatch for renewables that cannot control their production times or volumes? Wind and solar electricity, for example, are unable to choose when they dispatch and require a system that ensures their production always has take-up in the grid. While wind power from one location may vary, the total production over many locations aggregates into a much more stable supply of electricity. Question: Is there transparent pricing throughout the grid to allow fair prices for renewables? The relative costs of electricity throughout the grid need to be known, including the price of generation, the cost of infrastructure to get power there, the cost of losses, and any additional taxation. Once these are known, the offset costs of embedded generation can be quantified. These savings can then be fairly transferred from the distribution company to the generator.
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Question: Does the framework provide supportive cost distributions for infrastructure changes or upgrades? The approach of distributing cost over the entire consumer base may be quite applicable for renewables. Then, new transmission is considered a national infrastructure asset. Land Use Planning Reform Planning reform is necessary due to the distributed nature of renewable energy projects, the consequent need for many small projects, and ongoing evidence that planning obstacles can cause major delays for renewable development. Question: Are renewable resource maps available that can provide combined technical, environmental, and social overlays to allow informed decision making? The first step in planning reform is to ensure that sufficient information exists in terms of what resources a country has, in what volumes, and where it is located. Social impacts must then be considered such as population distribution, the impacts relevant to populations, optimizing employment creation by location, positive/negative overlaps with other land use, and issues of landscape sensitivity. Question: Are there environmental and social impact standards in place to provide guidance to developers and security to stakeholders? The next step is to ensure the impacts of renewable energy development are acceptable. Common impacts include noise levels from wind farms at the nearest dwellings, impacts of wind farms on birds or bats, impacts of biomass crops on local biodiversity, impacts of biomass residue on soil quality, effects of transport levels on local roads and communities, impacts during construction, and decommissioning arrangements. Government may not always be the best entity to take the lead on some of these issues. Question: Is there zoning or strategic mapping that minimizes planning risk for developers, and also minimizes confrontation between developers and stakeholders? Objecting parties will not confine themselves to comment within the planning process, but will expand complaints to the media and politics. There is strong evidence that pre-existing attitudes of local people to a particular development company will affect their attitudes to a project owned by that company. Equalizing the Community Risk Cost-Benefit Distribution It is important to ensure that local communities get their fair share of benefits of renewable energy. Question: Are the local impacts of developing renewable energy projects of this form known and quantified? Technologies such as wind, geothermal, and biomass may result in significant disturbance during the construction phases and entail some level of impacts thereafter. Knowing these costs, the benefits to communities can be reasonably distributed.
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Question: Do the policies require that communities and stakeholders are properly informed and consulted, and the potentially negative impacts thereby minimized? There are three steps to balancing an outcome: information, consultation, and adaptation. If information is developed only in response to community concern, the information vacuum may already be full of rumors, half-truths, untruths, and scandals. A crucial service that must be performed is to minimize the unknowns through the provision of balanced facts and experience. Personal acceptance of imposed change matters largely on the amount of consultation received, and most people feel it important that their voice be heard and acknowledged in the process. Following consultation, opinions, concerns and proposals should be considered and projects adapted where necessary. Incorporating formal government gives merit to this process. Question: Have the potential positive impacts for local and regional communities been maximized within the policy framework? It is important to maximize local benefits. These measures may have some cost impact on renewable energy, but they are necessary. Policy can ensure measures maximize local benefits through the use of the carrot (incentives) or the stick (obligations). Question: Does the policy framework provide incentives for local employment content? For every person directly employed by a company, typically another two are indirectly employed. Leveraging job creation at a local level significantly increases actual positive social impacts of projects. Question: Are there policies that provide means and incentives for local ownership? There is success linking tax benefits for renewable energy investment to geographical proximity of projects. Projects over $50 million will require intervention to create the means for local ownership.

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Chapter 4
An A to Z of Stakeholders
Stakeholders are the central part of winning policy change of any kind. Pro-renewable stakeholders have already put renewable energy on the political agenda. These people include interested academics, environmentalists, and energy providers. Impacted stakeholders will have a stake due to the effects that renewable energy development will have. This chapter will break down these different stakeholders and explain how each group plays a part in the development of renewable energy. Some Ways to Define Stakeholders Citizens The general public will be affected by renewable energy development in some way. They can act with great influence locally, regionally or nationally by writing letters to politicians or engaging in public consultations. Companies These are the equivalent individual commercial entity. Small companies will be locally based and have significant impact at the local level. Large corporations have access to government at its highest levels. Outward-looking companies will be better off to exploit domestic renewable opportunities. Non-governmental organizations (NGOs) This group covers any form of organization that is not a government body, ranging from non-profit organizations to environmental groups to commercially oriented industry organizations. Government This group is the ultimate stakeholder. They will be affected by how all other stakeholders are affected. The media This group mediates the interaction between all other stakeholders. Their influencing power makes them perhaps the most important stakeholder. They tend to be drawn to confrontation but use principles of balance. Also, the media is made up of people, and all people are biased in some ways. Some Ways to Define Effects on Stakeholders Direct economic impacts This group feels direct economic effects from the growth in renewables. Examples include beneficiaries, project developers, financiers, employees, fuel suppliers, landowners, and local councils.
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Indirect economic impacts This group is affected by secondary effects of renewable energy growth. It consists of local people who benefit from a general rise in commercial activity, industries which lose a market share to renewables, unions for renewable workers or competitor industries, consumers who have increases in their energy bills, and people whose property prices increase or decrease. Environmental impacts This refers to direct physical changes to biological activity and diversity and will be affected by changes in global ecology, climate, and species-specific impacts caused by renewables. Social impacts This might include changes to a landscape, re-routing of a walking path or establishment of a turbine viewing tower. This excludes direct environmental impacts but refers to an aesthetic or social change. Other stakeholders Others affected by renewables include the media, the military, transport agencies, aviation agencies, television companies, electrical standards agencies, etc. Many in this group will want to ensure no interference or disruption to their services. It is unlikely that they will be hostile to renewable energy. A Matrix of Stakeholders Economic direct impacts Employeesin industry or supplier, project contractors, site holders Economic indirect impacts Energy consumers, populations local to projects Environmental impacts Coastal communities, People affected by: climate change, extreme weather, air quality, radiotoxic emissions National significance: farmers Social impacts People concerned with social impacts such as landscape, transport Local residents or visitors

Citizen

Company

Renewable energy manufacturers, supplier industries, project developers, fuel suppliers, financiers

NGO

Government

Industry associations representing tourist organizations, business organizations Local councils, industry development agencies, departments of

Energy consumers, energy retailers, GHG mitigation suppliers, groups sensitive to GHG financial impacts Associations representing above unions Agencies responsible for: economics,
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(inter)national environment groups, ecology/conservation groups Environment agencies, sustainability

Landscape organizations, hiking groups, heritage societies Planning authorities, local authority,

infrastructure, local authorities, academic centers

employment, regional development, academic centers

agencies, local authorities, Green Party

conservation or cultural agencies

Stakeholders from first principles The scope of impact of renewable energy projects can be usefully classified in three levels: local, regional, and total. Local refers to the physical environment affected by the project. Regional means that some regions have more renewable sources than others and may have multiple projects move into the area with cumulative effects. Total relates to national and international effects such as cost impacts and emissions savings. Using the media to identify stakeholders Stakeholders may identify themselves through media reportage, and this can be very enlightening. People will form their opinions from the information they are exposed to, typically from press, radio, and television. Media coverage will help identify the vocal stakeholder groups. Industry needs to engage these people and consider their issues. Remember that media is drawn to confrontation, so the evolution of press coverage of renewable projects will be toward increasing coverage of objection as this will have greater longevity as news. In Australia, a study on renewable news coverage found the dominant stakeholder issue area was landscape, followed by noise, birds, and fauna. Interestingly, little concern was expressed toward actual economic, physical or environmental impacts. Looking for self-identifying stakeholders In the decision-forming process, those putting resources aside to participate in policy discussions will likely see themselves as stakeholders. A decision-influencing process may be generated through prorenewable energy campaigns which reach out to engage potential stakeholder organizations. Who represents absent stakeholders? Absent stakeholders include the biosphere at large, people suffering from floods, heat waves, or drought, and others. How are these groups represented? This job falls to inter-governmental agreements and the advocacy of NGOs. International environmental groups may be suitable stakeholders to represent the interests of the wider environment, but their influence is moral and ethical, which is far less binding than specific legislation. Understanding Stakeholder Resources Actual resources of various stakeholder groups vary. Groups funded through membership and donations have few staff. In considering their resources, we can make one assumption: Stakeholders will generally have the resources to adequately assess real or apparent impacts in their area of interest.
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An overview of stakeholder resources Individual people and small businesses will have limited specialist skills or knowledge and limited financial resources. Larger businesses will have considerable resources but will likely have less discretion over their use. NGOs will have some discretionary funds to obtain an expert opinion if required, but the funds will be earmarked for strategically significant projects. Governments have ample resources in all areas but are subject to the whims of political pressure. How might resources influence how a stakeholder acts? Lets look at the local citizens view of a new renewable project. They can accept the assessments undertaken by the developer, call in bigger specialist NGOs, or apply the precautionary principle to halt the development process. The third option arises out of distrust of the companys intentions and a lack of discretionary funds from the NGO to examine their specific case. Thus, the local citizen seeks to minimize risk by minimizing change. As a result, it may be in the developers interest to look at ways of making resources available to the local stakeholder to avoid this precautionary approach. A Rationale for Action: Risk Management For any new renewable development, the stakeholders risks include landscape, property value, tourism, and ecology. Developers risks include changes in plans, cost, rejection, and delays. Clearly, there is little overlap in the risks faced. And unlike the developer, stakeholders perceive no reward accompanying their risks. Therefore, it is important to recognize that risk rightly rests with the developer as the party with the most direct potential gain. Two solutions appear relevant. First, the risks to stakeholders are quantified, then removed or minimized. Second, the benefits to stakeholders are maximized. The latter option has proven successful in German and Danish wind implementation. Effective Engagement and Positive Outcomes Engaging stakeholders at a strategic level Perhaps the best level to start is with the entire vision of renewable energy development. Often, industry creates a project, and then involves stakeholders in the detailed planning phase and appeals phase. Instead, industry should involve stakeholders right at the project phase. Specialist stakeholders should be involved even during a pre-project or strategic level with industry. Afterwards, at the project level, their involvement may only be to check that a larger agreement has been adhered to by the developer. Risk and trust at the grassroots It is essential that stakeholders accept the integrity of the environmental impact assessment (EIA) made by a developer. The most obvious way to achieve this is to reach agreements with stakeholders on the terms of the EIA and the organization which will undertake it.
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A Closer Look as Some Key Participants The citizen Their source of engagement will be from a project level impact. They will rely on the art of community consultation. It is important to be on the front foot with citizens and be the first to make the approach. Individual investors People making the extra effort to find and invest in renewables are likely to be highly principled and motivated, reasonably well educated and empowered, and would make excellent allies. Renewable technology manufacturers A doubling of demand for renewables spells huge success for a small domestic manufacturer. However, they make poor negotiators for the industry as a whole. Larger companies will have top-down codes of practice and will generally shy away from being overtly critical or vocal. Renewable fuel suppliers Farmers that control wind and biomass resources do not self-identify as stakeholders and are hard to mobilize. Others will have to take action to identify, educate, and facilitate these stakeholders in the policy forming process. Renewable developers Single-interest developers will support high renewable development targets, while multi-interest developers may have internal conflicts of interest against large increases in renewable energy markets. Extra effort will be needed to ensure that the industry has a consistent voice and seen as credible. Finance companies This group is likely to be early movers if renewable energy development policies are put in place. They are influential industry participants. Institutional investors The power of this group lies in their wealth and placement of that wealth. They will be experienced in political processes, have the ability to directly communicate with their members, and can provide valuable experience and insight into the wider industry. Competitor fuel and power suppliers The coal industry is massive, established, wealthy, and highly polluting. Their life blood is the international power supply in industrializing countries that will double the current installed power capacity of the planet in just two decades. Do not expect a clean fight with the coal sector.

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Gas turbines could be ideal to cover fluctuations in non-dispatchable renewables, but the gas industry may see renewables as a competitor, not an ally. Their fortunes may be improved if renewables are constrained, so expect this to dominate their viewpoint. Large hydro already has strong economic value, but social and environmental impacts limit their expansion. If they are included in renewable policy, they will dominate financial flows for several years. Nuclear power is calling itself a climate change solution. They will downplay long-term waste storage and the more pressing issue of build-up of weapons suitable plutonium in Asia as a direct result of running nuclear power stations. Conventional energy generators Generators must be convinced of their opportunities or they will see renewables as a threat. Their links with pre-existing fuel suppliers will make this transition difficult. Energy transmitters/grid management This group will be unimpressed by intermittent supply sources. Early constructive engagement is key. Energy retailers In markets without competition, retailers wont care if new generation causes a price increase. In competitive markets, they will be concerned with renewable energy policies putting them at a disadvantage. The vertical integration of retailers puts them in a similar place as energy generators. Companies re-aligning themselves as energy companies will be more pro-renewable, but they will also be sensitive to price. General energy users The link between energy use and economic development has appeared to be unbreakable. Energy security and reliability will be more significant concerns than price. Energy-intensive users This group includes companies for which electricity is a considerable expense. Their underlying sensitivity to price is based on competitive disadvantage fears. They will argue for a policy structure which affects all competitors equally. Unions They can be influenced by any perceived employment risk to their industry, although they will also be interested in opportunities for unionizing new industries. Farmers and landowners

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This group is often not aware that they are one of the primary victim groups of climate change. There is value in building relationships with farmers and landowners at the project level in parallel with environmental groups. Non-governmental organizations Renewable energy NGOs will be great supporters, although they will be small and likely to be fighting amongst themselves. They need to make strategic links with natural allies that already have influence. Sustainable energy NGOs address the increased use of energy efficiency and gas in addition to renewable energy technologies. They are useful and powerful advocates but may have internal conflicts of interest. Local business NGOs are unlikely to be aware of the communitys renewable resources and its economic implications. Partnering with these groups can help overcome uncertainty about renewable energy. Fossil fuel NGOs can be quite vociferous in their campaigns to limit the development of renewables. They are likely to be extremely influential with government and have significant wealth to resource their causes through PR companies, lobbyists, and influential consultants. There is no way to out-gun these NGOs at their own game. The least that can be done is to carry out basic lobbying and provide correct fact sheets on issues. Energy generator NGOs strive for healthy working relationships to encourage progressive or neutral positions. Energy retailer NGOs could be a powerful ally or foe. Renewable retailers must take action to ensure these associations do not take a defensive attitude that resists change. Business NGOs tend to be very conservative and maintain a big-picture focus. They are often unable to stand one way or the other. While they should be neutral, their influence is important. Environmental NGOs can be the most dynamic proponents for renewable energy policy. Keep in mind that their agenda is to employ renewables to solve climate and pollution problems, not to build the industry. These NGOs often work through a public support base which is potentially a great asset for the renewables industry. Social and conservation NGOs regard any development as detrimental, but this does not rule out their acceptance of balanced interests. Early engagement of these critical stakeholders is essential. Professional NGOs will be some of the most environmentally aware people in society. They are unlikely to self-start in support of renewable energy, but could make powerful public allies. Anti-renewable NGOs will be either genuine members of communities that are concerned about specific issues, industry-funded organizations that have a specific anti-renewable agenda, or groups with mixed agendas which are less issue- and more cause-focused. It is important to correct wrong information provided by these groups through normal media correction.
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Government Political government (politicians, advisers, political parties) are quite focused on public feeling, marginal seats, voter sentiment, and the attitude of different demographics. They will have signature issues on which they focus. Bureaucratic government will try to provide the best outcomes for the constituency in their issue areas. The skill level and technical expertise of bureaucrats cannot be taken for granted. Solid networks and good information flow are crucial to ensuring that these bodies are producing sound information and recommendations for decision-makers.

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Chapter 5
The Politics of Achieving Legislation
Introduction We are now entering the quantum land of politics where nothing is guaranteed and all is probabilities. This chapter will illustrate points by drawing from experience with the Australian Wind Energy Association (AusWEA) and the expansion of their national Mandatory Renewable Energy Target (MRET). First, it must be realized that renewable energy policy will only be legislated when it is accepted by all three pillars of change: government, industry, and society. It is easier to say no than it is to say yes, meaning that change is always harder than maintaining the status quo. For energy policy change, the environmental movement finds itself in the novel situation of doing the problem solving. They are not used to this role, and the key to successful solutions campaigning is leadership. Keep in mind these basic concepts as we explore the political game of renewable legislation. Analyzing the teams In reality, change always comes down to people. Who is on the renewable side and who is not? On the renewables team, we definitely have the renewables industry, large environmental groups working on climate change or energy issues, and some parts of government. On the opposing team, we definitely have pure fossil fuel, nuclear, or large hydro suppliers, energyintensive industries, and other parts of government. Players who could go either way include energy companies, energy consumers, smaller environmental groups that do not work on climate change, single-interest environmental groups, unions, farmers, property holders, conservation groups, and local and state governments. Sitting on the bench are the general public, finance sector, insurance sector, health groups, churches, scientists, educators, and business lobbies. How do things look so far? The odds are not looking good for a renewable energy win. Without intervention, the most likely achievement will be a set of toothless policies that spawn some good-looking showcase renewables projects but fundamentally leave the system unchanged.

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A Campaign Strategy for Renewable Energy There are ten questions that need to be addressed to form a communication plan for renewable energy: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Project Objectives: What needs to be achieved? Target Audiences: Who do we need to reach? Situation Analysis: What is the noise above which we must be heard? Strategy: How will we reach them? Key Messages: What do we need to communicate? Tactics: What are we actually going to do? Schedule: How much time do we have and when will we do what? Budget and Resources: What human, financial, and other resources are required? Measurement Criteria: How do we measure our progress? Dynamics: How do we keep abreast of change?

The rest of this chapter will address each of these points in more detail. Project Objectives: What needs to be achieved? The objectives we choose must lead to real and sustained increases in renewable energy generation. For renewables, the objectives tend to set themselves. Based on the MRET campaign in Australia, we know that the objectives must touch members of the public in some way in order to build up the political capital of the industry and its proponents. Target Audiences: Who do we need to reach? The final measure of success is legislative change. Therefore the decision-makers in policy, politicians, are the ultimate target. However, we will need to influence many individuals and groups along the way who feed into the path of influence of these politicians. Key ministerial politicians are those with portfolios covering energy, the economy, environment, and industry. We should understand what the balance of power between portfolios looks like in order to indentify the obstacles politicians will face to set up required legislation. Who do politicians listen to? Within politics, they listen to advisers and other ministerial staff members. Any of these people will pass messages upward with prejudices attached, both positive and negative. Politicians also listen to parliamentarians in marginal seats that will help them stay in power and maintain the standing of their government. There may also be internal political champions who are prepared to act as political leaders in the campaign for legislative change. The role of these campaigns is to build pressure for change and then create political space for new legislation. Outside politics, politicians will keep an eye on a wide spectrum of influencers. Doctors, churches, international aid groups, scientists, academics, industry groups, unions, farmers, large companies, popular retail brands, the finance sector, or insurance companies have yet to largely speak out on the issue of renewables. They will be heard when they do. If the head of an oil company speaks out about
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supporting renewable energy, this will be reported in the business pages rather than environment pages, reaching a different audience. Large energy companies also have high-level direct access to politicians, where they can convey messages that will not be heard elsewhere. However, the most powerful outside influencer is the voting public who control a politicians power. Situation analysis: What is the background noise above which we must be heard? While some issues naturally rise to the top to dominate media and public space, others must jostle for space in competition with everything else that is going on. More general, national media is considered the external situation. The current focus of discussion of the energy or environment sector is considered the internal situation. Situations of each of our target audiences are called target situations. The external situation is best characterized by saying that solutions are good news, and good news is rarely big news. This keeps renewables out of media coverage. However, other news can sometimes provide a platform for renewable entry, such as a discussion on oil shortages, climate change stories, or the fact that coal plants use up to 2 liters of water per kilowatt hour. The internal situation is becoming one of rising groups opposed to single renewable projects. However, their opposition to a single project tends to smear the entire industry due to aggressive tactics and factual deception. In target situations, we need to know what is occupying the target groups attention right now. Then we can learn what can make our messages resonate. We can analyze how effective we are reaching our audiences through media analysis such as media monitoring companies, perception audits through a PR company, focus groups, and polling. Strategy: How will we reach the audiences? Strategy links tactics to our objectives. It is the game plan. While it is tempting to jump right into doing things without going over strategy, that is a fast track to failure. Effective strategy requires understanding of the concept of political space. This is the real decisionmaking space a politician has in choosing legislation after balancing technical recommendations from competing interests on a particular issue, particular electorates, pressure from society, and the media. Our strategy must block out negative decision space, secure positive decision space, and re-open positive decision space where it has been closed off. Often, political space for legislation is blocked in both directions. In this case, politicians will likely choose the lesser of two evils, taking the least politically damaging path. In this regard, support among the public for environmental protection and renewable energy is one of the renewable energy sectors greatest assets. There are three mutually-reinforcing approaches to directly influence and define the political space around politicians. First, we can go straight to the politicians or their advisers. Second, we can enroll

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the aid of people and groups with weight and influence. Third, we can engage and build support from appropriate subsections of the public. Key messages: What do we need to communicate? People retain about 3% of the detail in a presentation and about 10% of the general orientation. Mainly what they remember are impressions of the presenter. To be retained, information has to be fully comprehensible to an 11-year-old. The bottom line is that complex information does not get through. Only one or two messages can be used with a given audience, and they must be repeated over and over again. There are two levels of commonality for key messages. First, all proponents of renewable energy must push in the same direction, repeating the same what we want message. Second, all messages within an industry or industries must reinforce the same why messages. Answering the following questions should help filter out messages that will and will not work: Are the messages simple and easily comprehended? Do the messages provide a compelling balance to the obstacles in mind of the politicians? Will they resonate and engage the target audiences? Will they provide a universal platform that various groups can adopt as their own?

We can already come up with several messages to express why we want renewable energy: Renewable energy is proven. Renewable technologies are mature. Renewables foster energy security. Renewables are benign. It is a growth industry. Renewables foster investment. Renewables create employment. The cost of renewables is falling.

Continuing with the MRET example, the key messages that were arrived at were as follows: Wind power is a low-impact way to help protect future generations from climate change. Wind power in Australia is a success creating jobs, building factories, and leveraging billions in investment. The activity and investment is focused in rural areas. Ongoing success depends on MRET being increased.

Implementation and tactics: What are we actually going to do? Most communication tactics are obvious, but it is often the more innovative ideas that find their target. To maximize political space in the MRET campaign, a public opinion poll was conducted, with the results sent to a database of politicians around the country. The message: renewable energy is popular,
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supporting its increased use will also be popular, harming the future of renewable energy will be unpopular and potentially politically damaging. To address the issue of job creation in fossil fields, a separate study was done that found on a kilowatt hour basis, wind farms created twice as many permanent jobs and six times more manufacturing and installation jobs than coal. The fossil fuel industry will certainly use their deep pockets to lobby big brand economic reports of their own, but these studies do help open up positive political space. The biggest group involved in renewable campaigning is the general public, particularly those who lack an opinion on the topic. This group can be engaged by presenting target goals in terms of numbers of homes. Before embarking on a serious campaign, make sure to have information regarding all areas of concern. For wind, this would include issues with birds, noise, landscape, tourism, and property prices. Polling can be a very effective tactic to end the spread of misinformation through the media. For example, while a small group of anti-wind protestors can capture media attention, a poll showing that 95% of the public supports the installation of wind farms can diminish their negative impacts. Schedule: When will we do what? The schedule will be bounded by the available budget, and it should be cognizant of a legislative schedule that includes timing of government reviews, parliamentary sitting times and elections. A key area of weakness in scheduling is the ability to know with certainty how long a campaign will take. Resources and budgets: What human, financial and other resources are required? Working to promote change rather than block change puts the onus on the proponents to prove their case, and this is very resource intensive. A good leader can come from the ranks of industry or an outsourced PR company. Both routes cost money, and the better the standard of the people, the more expensive they will be. Do not overlook the human resources of environmental NGOs to take on political campaigning. The renewable energy industry itself must contribute the little extra money they have to campaign efforts. This may sound like a highly risky investment. However, if the campaign succeeds, the market created will make campaign investment look like petty cash. If the campaign fails to expand legislation, the ability of the business to grow will be limited, and spending money elsewhere wont change that reality. Thus campaign contribution is a low-risk investment. Measurement criteria: How are we doing? Before we can determine whether a strategy has worked, we have to know whether that strategy has been properly implemented. A simple indicator is column inches, or the amount of coverage in print media. A better indicator is the statements or outcomes of government processes. A better indicator still may be public polling. Some industries can be hurt by their own campaign and do better by staying out of the news (i.e. nuclear), but renewables can expect significant public support since they are meeting a crucial environmental need.
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Dynamics: How do we keep abreast of change? External events will change the terrain upon which we have mapped our course. To ensure the wise use of resources, a campaign strategy cycle must be periodically reviewed and updated. Remember not to let the heat of any moment swing the campaign around so much that the strategy is lost. At the same time, avoid campaigns that are too inflexible to evolve with current events.

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6: Renewable policy lessons from the US

The Need for Consistent and Stable Politics
This chapter examines the development of wind energy markets in the US. The general lesson learned from US experience is that policy support must be consistent, predictable and long term if renewable energy is going to make a significant contribution to the US electric power sector. The US PURPA years In 1978, Congress passed the Public Utility Regulatory Policies Act (PURPA) as part of the National Energy Act. This act had two critical components: access and pricing. For access, the law required utilities to interconnect to small power producers, including independent renewable generators. For pricing, the law required utilities to purchase power from the independents at what was termed the avoided cost of the utility. The role of the states Congress delegated setting of the avoided costs to the states. In California, there was a significant standard contract for renewable generators under PURPA, titled Interim Standard Offer #4, or ISO4. This was a 30-year contract with a capacity payment, and the first 10 years had energy prices fixed. These first 10 years of avoided cost payments were based on projections of future oil prices. The ISO4 contract did not last. Oil prices did not increase as forecast but instead declined in 1985. As a result, wind development in the US stagnated and most of the manufacturers in the country went out of business. No other state was as strong as California in growing renewables. In New York, the famous six-cent law paid independent generators 6 US cents per kWh, but this was not sufficient to support renewables at the time. Maine enacted high avoided cost prices, but the decline of wholesale prices ended renewable growth. The Wind Production Tax Credit The Production Tax Credit (PTC) went into effect January 1, 1994, providing an inflation-adjusted tax credit of 1.8 US cents per kWh on taxable income for the first 10 years of a facility. The PTC has expired twice, only being renewed for two-year periods, thus setting up boom-bust cycles in the wind industry. Many businesses could not take advantage of the PTC because they were not profitable enough to take advantage of the credits. As a result, the market for wind has become dominated by a few large companies that have a large tax appetite. Ultimately, the PTC was not a market maker for wind.

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The RPS: a Renewable Energy Policy for Competitive Electricity Markets In the early to mid-1990s it became clear that the electric industry was moving towards a more competitive model. The American Wind Energy Association (AWEA) was looking to devise a policy approach more compatible with competitive markets. What they came up with was the Renewable Portfolio Standard (RPS): Competitively neutral applies to all competitors equally Market-driven relies on the free market to ensure renewables are developed optimally Flexible introduced the concept of tradable Renewable Energy Credits (RECs) Simple minimal government involvement entailing monitoring compliance and facilitating trading Complements research, development, and deployment (RD&D) goals Stable provides a long-term, predictable market for renewables

The RPS has never been adopted on a national basis, but 21 states have developed such a policy. Texas is the shining example of a successful RPS policy. The Texas Renewable Portfolio Standard The Texas RPS required 2880MW of renewable energy by January 1, 2009, with 2000MW of that to come from new renewable projects. It had many important elements, including: Placing the RPS requirement on all electricity retailers serving competitive markets An accessible REC trading system via the Internet Flexibility in meeting the RPS requirement A penalty for non-compliance that is the lesser of 5 US cents/kWh or 200% of the mean REC trade value A careful definition of the renewable technologies

The impact of the RPS The Texas RPS represents about 3% of the states total electricity consumption. To their advantage, Texas has a high-quality wind resource second only to North Dakota in the US. As a result, wind power projects can deliver power for less than 3 US cents/kWh. In order to keep costs low, electric retailers have been willing to enter into long, 10-25 years contracts with wind generators. These long-term contracts provide renewable energy developers with a steady revenue stream to make financing possible. Recently, Texas has run into some problems due to the high capacity of wind in west Texas where there is low population and consequently an undersized transmission system. However, after transmission planning can be sorted out, the importance of an RPS to encourage long-term contracts, over 10 years, has proved crucial to the steady development of wind power.

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Meanwhile Wind Energy in Europe The worlds fastest growing wind energy market is in Europe. The European Wind Energy Association estimates that there will be 100GW of installed wind power by 2010. The Electricity Feed Law: A fixed-price approach The Electricity Feed Law has been adopted in Denmark, Germany, Italy, and Spain. The law requires utilities to buy renewable energy from independent power producers at a government-defined price. Germany refined the law in 2004 by distributing the amount of renewable energy equally among all electricity suppliers, keeping the defined tariff rates for renewable energy. Germanys law also classified wind as priority power and required grid operators to upgrade the grid when necessary to connect to a new wind project. The new law gets re-evaluated by German parliament every two years. In Denmark, wind power generators received payments of 85% of retail electricity rates. The fixed price period for wind was instrumental at getting the Danish wind industry off the ground. By 2003, Denmark received 27% of their electricity from renewable energy as a result, and they had the largest wind turbine manufacturing industry in the world. Implications and Summary The primary difference between the European electricity feed law and Californias ISO4 contract was that the price paid for renewables in Europe was based on a percentage of the retail price, while the ISO4 price was based on state and utility forecasts of future oil prices. Thus, setting the price is a critical factor for renewable energy growth. In the US, it would be impractical to have a national price for renewable energy due to regional differences in wholesale electricity price. Setting regional fixed prices is more workable but could become process heavy and bureaucratic. The RPS is conceptually simple, but it has many critical details: Apply the RPS to at least the majority, if not all, electricity retailers Provide a steady but not insurmountable increase in the level of renewables over time Clear start and end dates Clear resource and geographic eligibility definitions Flexibility mechanisms to ease compliance Renewable energy credit trading system Emphasis on long-term contracting

The key to a booming European wind market has been policies that have been relatively stable and long term. Current efforts in US federal renewable policy has subjected the wind industry to vicious boombust cycles, creating a hostile climate to nurture a wind manufacturing industry. The US must provide more effective and consistent policy support for the multi-billion dollar wind industry.

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7: Development of Renewable Energy in India

An Industry Perspective
With a growing population of over one billion and an ongoing path of industrialization, India is already and will continue to be one of the worlds largest markets for new energy in the world. The predicament of the Indian power consumer Today, the end users of electricity in India are confronted with frequent power cuts, both scheduled and unscheduled. Major causes behind the inadequate, erratic and unreliable power supply can be summarized as: Inadequate power generation capacity A lack of optimum utilization of the existing generation capacity Inadequate inter-regional transmission links Inadequate and aging transmission and distribution networks Unauthorized tapping of power Skewed tariff structures The slow pace of rural electrification Inefficient use of electricity by the end consumer

As a result of these deficiencies, many consumers are looking toward stand-alone electricity generators. Money spent by the domestic and industrial sectors on these standby power supply arrangements may be among the highest in the world. It is also worth looking at some of the elements that are creating and attracting global energy players to set up business in India: Abundant coal reserves (at least 200 years worth) Vast, large-scale hydroelectric potential (150,000MW) Large new renewable energy potential (100,000 MW total: 22,000MW agricultural waste biomass, 45,000MW wind, 15,000MW small hydro, 2500MW equivalent of waste, very high insolation levels) Large and increasingly skilled pool of highly skilled technical personnel Emergence of strong and globally comparable central utilities Enabling framework for private investors Well laid out mechanism for dispute resolution Political concensus on reforms One of the largest future power markets in the world

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There are three medium-term goals for the Indian power sector: 1. To provide power on demand by 2012 2. To provide reliable and quality power at an economic price 3. To achieve environmentally sustainable power development Four Key Drivers for Renewable Energy in India The key reasons for wider use of renewable energy in India are as follows: Rapidly growing energy demands and inability of conventional systems of power generation to met this challenge Local and global environmental degradation as a consequence of power generation with fossil fuels Imperative need for meeting energy needs of the unserved and under-served populations in rural and remote areas Depletion of indigenous fossil fuel reserves

Based on projections, additional generation capacity of over 100,000MW needs to be added to ensure power on demand by 2012. This will nearly double existing capacity, creating an investment cost of approximately US$175 billion. Currently, Indias mix of installed capacity is 70% thermal, 24% hydro, 3% non-hydro renewables, and 2% nuclear. India is a net importer of energy, particularly oil, accounting for 30% of total energy consumption and 20% of total imports for the country. Renewables provide several good candidates that could address energy security issues. In terms of environmental protection, the trajectory of the Indian energy sector in terms of GHG emissions will be of global significance. The solution is a shift towards environmentally benign energy resources. About 70% of Indias citizens live in rural areas and yet approximately 18,000 villages have no electricity. Renewable energy sources are often well suited to remote areas and would offer suitable solutions to address this serious problem. The Evolution of Renewable Energy Policy-Making in India Two major issues have been responsible for putting renewable energy sources in the right perspective in India: the widening gap between energy consumption and supply, and the resultant polluting emissions generated by using conventional fossil fuels. Renewable energy not only augments energy generation and GHG emissions mitigation but also contributes to improvements in the local environment, afforestation, drought control, energy conservation, employment generation, upgrading of health and hygiene, social welfare, security of drinking water, increased agricultural yield, and production of biofertilizers.

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There have been three distinct stages of renewable development in India: Capacity building and R&D in the 1970s and early 1980s Emphasis on large-scale demonstration in the 1980s Emphasis on the application of matured technologies, gradually shifting from subsidy-driven to commercially driven activity in the 1990s

India boasts the only exclusive ministry to deal with new and renewable energy sources, the Ministry of Non-conventional Energy Sources (MNES). Supports, Targets, and Instruments The cost of large-scale resource assessment in prohibitively high for individual companies and has been taken on by the MNES. The Biomass Resources Assessment Program provided inputs for a Biomass Atlas for India. A database of small hydro projects (less than 25MW) has been created by MNES that includes at least 4096 sites with a potential capacity aggregating 10,071MW as of 2002. The MNES has set a target for policy framework to have 10% of capacity additions in India be met through renewable energy by 2012. This will foster a target renewable energy market worth approximately US$13 billion by that year. Indian renewable energy markets have already passed through US$2.2 billion and are growing at a rate of 15% every year. The industry is dominated by small and medium-sized enterprises. Most manufacturing companies are also relatively small, and the establishment of local medium and large industrial manufacturing will be essential to the healthy growth of the industry. Some incentives currently extended to the renewable energy sector include: Providing budgetary resources from government for demonstration projects Loans on soft terms from the Indian Renewable Energy Development Agency for commercially viable projects Leverage of external assistance from international bilateral agencies Encouraging private investment through fiscal incentives, tax holidays, depreciation allowance, facilities for wheeling and banking of power, and ensuring remunerative returns for power supplied to the grid

Joint ventures have had particular success in establishing renewable energy markets in India. Investment proposals with up to 74% foreign equity participation qualify for automatic approval. Some incentives available for setting up wind power plants include: A 100% depreciation in income tax assessment on investment on capital equipment in the first year A five-year tax holiday on income from sale of generation Industry status, including capital subsidies in certain states Electricity banking and wheeling (moving) facilities
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Buy back of power generation at remunerative price Third-party direct sale of power generation in certain states

The government has recognized their role in prioritizing public and private sector investments in the most viable resources and technologies. During the Seventh Five Year Plan (1987-1992), the government decided to import wind electric generators and install them as demonstration wind projects. Today, this focus has culminated in a fully fledged domestic industry that sells wind turbines. India is one of the largest existing markets for solar home systems, and R&D funding has been a major part of the Indian Solar Photovoltaic program. They are also developing technologies with significant potential for India such as solar thermal power systems based on solar thermal concentrators. A key role of the government is to use national standards to ensure consumer confidence in new technologies. Today, products are standardized by the Bureau of Indian Standards (BIS). The renewable energy sector in India has been given priority sector status by the Reserve Bank of India. This has allowed the MNES to set up a financial institution, the Indian Renewable Energy Development Agency Ltd (IREDA), to provide financial assistance to renewable technologies and projects. Indian lawmakers in the MNES have done well to communicate their guidelines to both state governments and private sector developers. This has given transparency to policies on power generation from renewable energy sources. The reward for leadership in any commercial field is the ability to export products and services to those that come later. When the Indian government imposed a customs duty on complete wind electric generators in 1992, it resulted in at least ten domestic manufacturers of wind electric generators and components. A major solar thermal company in India set up in the late 1980s now exports products to Spain, Germany, the Netherlands, Denmark, Greece, Turkey, Cyprus, Korea, and Africa. International Policy Opportunities The Clean Development Mechanism (CDM) is designed to assist developing countries achieve sustainable development and assist parties in achieving compliance with their emission limitations. Under the CDM, countries cooperate in an emissions mitigation project in a developing country with the donor country acquiring the Certified Emission Reduction Units, while the host country benefits from the contribution of the project to sustainable economic development in environmentally sound technologies. For India, the CDM offers an opportunity to promote sustainable development and direct the flow of capital, expertise, and technology into their country. In the future, the Indian government will focus policy initiatives on encouraging private investment and Foreign Direct Investment (FDI). The emphasis now is on cost reductions and increases in efficiency. Nationally, renewable energy is effective for meeting ever-increasing energy demands and providing sustainable national energy security, with important benefits to the population. India is, and will continue to be, a place of great opportunity for the global and national renewable energy industry.
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